Most of bad housing news is now out of the way...and Dublin will recover quickest

28 September 2011 04:00 PM

FIRST, some good news. The fall in house prices might be accelerating, but vacancy rates in Dublin are falling.

Estate agents Savills have published figures claiming that the number of unoccupied houses in the capital had fallen from 11,000 in March 2010 to just 5,400. According to Savills, people who are unable to sell their houses are successfully renting them instead.

The Savills' figures support the findings of last April's census which showed that the proportion of vacant houses in Dublin and the surrounding counties, at 10pc or less, is much lower than elsewhere in the country -- for example over 30pc in Co Leitrim.

Despite this chink of positive news, it's back to business as usual for our stricken property market.

The latest house-price figures from the CSO weren't bad, they were catastrophic.

After a few months during which it seemed as if the worst might be over, house prices plunged by 1.6pc in August and by 13.9pc over the past 12 month.

The situation is even worse in Dublin, where house prices fell 3.8pc last month and by 14.9pc over the past 12 months. Owners of Dublin apartments have been worst hit, with prices falling by 6pc last month and by 17.4pc over the past 12 months.

With house prices having now fallen for more than four years, the cumulative falls are horrific.

The average Dublin house price has dropped by 48pc from the 2007 peak while apartment prices are down by a truly scary 57pc.

Translate these percentages into actual numbers and someone who bought a Dublin house for €500,000 in early 2007 would now have an asset worth just €260,000 while the person who paid €400,000 for an apartment in the capital at the same time now finds themselves with a property worth just €172,000.

And the bad news is that things will almost certainly get even worse before they get better.

This year's census confirmed previous academic research showing that there were several hundred thousand unoccupied dwellings in the country, with the census putting the number at over 294,000.

That's more than one in seven of all houses and apartments in the country.

Estimates on the underlying demand for new houses vary, but most economists put it at somewhere between 20,000 and 30,000 a year.

In other words, the overhang of unoccupied houses is equal to somewhere between 10 and 15 years' demand.

And that's not the only pointer to a further fall in house prices.

Even after the price-falls of the past four-and-a-half years, the average house price in Dublin is still about €225,000, while the average house price in the rest of the country is still approximately €180,000.

This means that the average Dublin house price is still the equivalent of seven-and-a-half times average earnings, while outside of Dublin the average house price is the equivalent of six times' earnings.

That's way, way too high.

The other factor pointing to further house-price falls is the likelihood that even when the banks do start lending again, they will apply very strict criteria.

That means that house prices could still fall by as much 50pc nationwide from their current depressed levels.

But perhaps not in Dublin. And here's another small crumb of comfort for the capital's homeowners.

House prices have fallen furthest in Dublin and the surrounding counties.

While it may be little consolation to homeowners in the capital, most, if not all, of the bad news is probably already out of the way.

What this means is that when prices do bottom out and the banks start lending again, house prices in the greater Dublin area and the surrounding commuter counties will recover much more quickly than those in other parts of the country.